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On August 22, 2016, the Consumer Financial Protection Bureau (“CFPB”) entered into a consent order with Wells Fargo over the manner in which Wells Fargo has been unlawfully handling its student loan servicing practices. The CFPB is a federal government agency that is tasked with investigating unlawful and unfair practices that creditors, banks, and debt collectors engage in with respect towards consumers. If violations are discovered and alleged, the CFPB has the power to issue a wide array of penalties that could include ordering a business to close its operations. Needless to say, when the CFPB sets its targets on a financial entity, the company should be in fear.

On August 22, 2016, the Consumer Financial Protection Bureau (“CFPB”) entered into a consent order with Wells Fargo over the manner in which Wells Fargo has been unlawfully handling its student loan servicing practices. The CFPB is a federal government agency that is tasked with investigating unlawful and unfair practices that creditors, banks, and debt collectors engage in with respect towards consumers. If violations are discovered and alleged, the CFPB has the power to issue a wide array of penalties that could include ordering a business to close its operations. Needless to say, when the CFPB sets its targets on a financial entity, the company should be in fear.

Before we discuss specifics, it is important to note that inquiries remain on the consumer’s credit reports for two years. Soft inquiries will have less of an effect on the consumer’s credit score than hard ones. So what’s the difference?

Processing payments in a way that maximized fees owed by consumers. Specifically, if a borrower made a payment that was not enough to cover the total amount due for all loans in an account, Wells Fargo divided that payment across the loans in a way that maximized late fees rather than satisfying payments for some of the loans. The bank failed to adequately disclose to consumers how it allocated payments across multiple loans, and that consumers have the ability to provide instructions for how to allocate payments to the loans in their account. As a result, consumers were unable to effectively manage their student loan accounts and minimize costs and fees.

Billing statements misrepresenting to consumers that paying less than the full amount due in a billing cycle would not satisfy any obligation on an account. In reality, for accounts with multiple loans, partial payments may satisfy at least one loan payment in an account. This misinformation could have deterred borrowers from making partial payments that would have satisfied at least one of the loans in their account, allowing them to avoid certain late fees or delinquency.

Illegally charging late fees even though timely payments had been made. Specifically, charging illegal late fees to payments made on the last day of their grace periods, and also charging illegal late fees to certain students who elected to pay their monthly amount due through multiple partial payments instead of one single payment.

Failing to update and correct inaccurate, negative information reported to credit reporting agencies about certain borrowers who have made partial payments or overpayments.

For these unlawful practices, Wells Fargo must pay at least $410,000.00 to consumers as compensation for illegal collection fees and late fees, and must allocate partial payments made by a borrower in a manner that satisfies the amount due for as many of the loans as possible, unless the borrower directs otherwise. Wells Fargo must also provide consumers with improved disclosures in billing statements, which must explain how the bank applies and allocates payments and how borrowers can direct payments to any of the loans in their student loan account. Wells Fargo must also remove any negative student loan information that has been inaccurately or incompletely provided to a consumer reporting agency. Wells Fargo must also pay a $3.6 million penalty to the CFPB’s Civil Penalty Fund.

Clearly, this is not a light slap on the wrist that banks typically believe they should get, and this strong action by the CFPB should hopefully send a clear message to Wells and other financial institutions that they must take consumer rights very seriously and respect consumers as human beings instead of just another financial account on the books.

If you or a loved one have concerns over any account being serviced or owned by Wells Fargo, please do not hesitate to contact our law firm for a free and confidential consultation to discuss your rights.